Monthly Archives: September 2017

When assessing whether a property is a person’s ‘main residence’ for Capital Gains Tax (CGT) purposes, it is the quality, not the quantity, of occupation that matters. A tribunal made that point in upholding a householder’s appeal against back-tax and penalty demands totalling more than £46,000.

The man had bought a house for £420,000 through his company. He lived in it for about two and a half months before the financial crash intervened and he had to move out and rent the property to a friend. After his tenant died about two years later, he moved back into the property for a further six months.

However, he felt unable to remain there due to his mental health difficulties and the house was eventually sold for £550,000, realising a profit of £121,000. He did not declare that gain on his tax return and, following an investigation, HM Revenue and Customs served him with a demand for £27,312 in CGT. He also received a late payment penalty of £19,118.

In allowing his appeal against those bills, the First-tier Tribunal acknowledged that he had been in occupation of the house for less than half the period during which he owned it. However, it was satisfied that it had been his intention from the outset that the property would be a home for himself and his family. That hope had in the event been thwarted by factors outside his control. In the circumstances, the house had been his main residence and no CGT was payable.

It is common for couples to make so-called ‘mirror’ wills, leaving everything to each other and, eventually, to their children. Such documents may appear simple but, as one High Court case showed, they can be effectively unchangeable, depending on what promises are made at the time.

A husband and wife signed mirror wills in 2000 which provided that each would inherit the other’s estate and that, when both of them died, everything would go to their daughters. Following the husband’s death, the wife made more than a dozen further wills, each replacing the other, before her own death 16 years later. The last of those wills bequeathed £40,000 in legacies to the daughters, but the remainder of the wife’s £213,000 net estate to other beneficiaries.

There was no dispute that the wife had the mental capacity required to make a valid will. However, her daughters argued that, by changing her will, she had broken a binding commitment that she had made to her husband before his death. They had been present when the mirror wills were signed and had been assured by both their parents that their terms were ‘set in stone’ and would not be changed.

In upholding the daughters’ arguments, the High Court accepted their evidence as to the mutual promise that their parents had made. There was no doubt that both of them intended at the time that their wills would not be changed. On her husband’s death, therefore, the wife lost the unilateral right to dispose of her estate as she pleased. In the circumstances, the Court ruled that her personal representatives held her estate on trust to give effect to the mirror wills.